Myeconlab With Pearson Etext -- Access Card -- For Microeconomics
9th Edition
ISBN: 9780134143071
Author: PINDYCK, Robert, Rubinfeld, Daniel
Publisher: PEARSON
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Question
Chapter 16, Problem 6E
To determine
The straight line contract curves.
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Students have asked these similar questions
In the contract curve, do all the points equally represent desirable conditions to a just society? Explain
Consider an exchange economy with 2 agents and 2 goods.
In an Edgeworth-Bowley diagram, show and illustrate that if both agents have the same preferences, the contract curve is a straight line from the bottom left-hand corner to the top right-hand corner.
Does it follow that if the agents do not have the same preferences, the contract curve is not a straight line?
Suppose the two agents have the same endowments and the same preferences. Is mutually beneficial trade possible? Illustrate in an Edgeworth Bowley diagram.
State and explain Walras Law. What are the implications of Walras’s Law? Illustrate Walras Law in an Edgeworth-Bowley diagram.
Dear tutor, please solve these True/False Questions. Thank You!
1. Any point on the contract curve is Pareto efficient regardless of the initial endowment.
2. When two people trade their initial endowments to a point on the contract curve, only the level of the endowments will determine the new allocation.
Chapter 16 Solutions
Myeconlab With Pearson Etext -- Access Card -- For Microeconomics
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Similar questions
- “Because all points on a contract curve are efficient, they are all equally desirable from a social point of view.” Do you agree with this statement? Discuss.arrow_forward“Because all points on a contract curve are efficient, they are all equally desirable from a social point of view.” Do you agree with this statement? Please explain whyarrow_forwardConsider a simple economy with two individuals (A and B) and two goods (x and y). Can you draw the Edgeworth Box Diagram and explain the contract curve?arrow_forward
- Suppose the Economics Department has a graduation party for its students but as a final test they must show they have learned something about trade. Students in group A are given food (F) when they walk in, and students in group B are given a drink (D). Refer to Scenario 1. Suppose they have very different preferences where food and drink provide utility. For group A, U = FαDβ. For group B, U = min{F,D}. The contract curve in the Edgeworth box using a representative from each group would be (a) a right angle connecting the lower left corner with the upper right corner.(b) a curve (not necessarily a line) connecting the lower left corner with the upper right corner. (c) a line connecting the lower left corner with the upper right corner.(d) a right angle connecting the upper left corner with the lower right corner.arrow_forwardWhat does the contract curve in an Edgeworth production box signify? Why do competitive markets generate equilibriums that lie on the contract curve?arrow_forward22) Consider a society consisting of just a farmer and a tailor. The farmer has 10 units of food but no clothing. The tailor has 20 units of clothing but no food. Suppose each has the utility function U = F * C. Derive the contract curve. 23) Robinson starts out with 10 lobsters and 5 coconuts. Friday starts out with 10 lobsters and 15 coconuts. After trading, Robinson ends up with 8 lobsters and 10 coconuts. Robinson feels neither better nor worse off than when he started but cannot get Friday to agree to any more trades. Friday feels better off than when he started. Draw the Edgeworth box consistent with this story.arrow_forward
- An exchange economy consists of two individuals and two goods. The two individuals have the following Leontief utility functions: Person 1: U1(x1, y1) = 3x1 + y1 Person 2: U2(x2, y2) = x2 + 2y2 Person 1 has an endowment of e1 = (3, 2). Person 2’s endowment is e1 = (3, 4). In an Edgeworth Box diagram, show which allocations are in the core. Describe the set of Pareto optimal allocations (i.e. the contract curve) in the Edgeworth Box. Illustrate the contract curve in an Edgeworth Box diagram. Let good y be the numeraire (i.e. set py = 1 and let px = p). What price ratio(s) P* will support a competitive equilibrium allocation for this economy?arrow_forwardDear tutor, please solve these True/False Questions. Thank You! Can it be efficient for one trader to consume all units of the goods while the other trader consumes nothing? In other words, does this point lie on the contract curve? A competitive equilibrium is not Pareto efficient if some members of society are unable to afford a necessary good.arrow_forwardUsing an Edgeworth box: If two consumers view shoes and socks to be perfect complements and the world is endowed with 1000 units of socks and 600 units of shoes, derive the contract curve for this economy.arrow_forward
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